Loans from EBTs and other Trusts

[craig1]

Erm, I thought Tax Avoidance was legal and Tax evasion was the naughty one.

Is this HMRC deliberately muddying the waters?

What that means is that if you're using one of those avoidance techniques that they consider to be ethically suspect then they're far more likely to challenge your Self Assessment. The challenge may come back as clear but they will try to assess you against a negative and narrow view of avoidance versus evasion, i.e. "how can we get more tax revenue out of this person" and they'll try to make their available tools fit to you.

[LisaContractorUmbrella]

Erm, I thought Tax Avoidance was legal and Tax evasion was the naughty one.

Is this HMRC deliberately muddying the waters?

Certainly seems that way Churchill

[Vallah]

And that raises very obvious question - if the Great Eye took risks of being accused of retrospection for the sake of 2500 people allegedly using schemes covered by BN66, then why would it let tens of thousands get away with essentially the same stuff?

You will only be sure that it worked in 6+ years.

Which is exactly how long some of our clients have been with us.

[AtW]

Which is exactly how long some of our clients have been with us.

That just means they are exposed to a rather long period of time that can be questioned: only now their first years would probably be passable, and given that long period they present very tasty target for HMRC.

HMRC is clearly doing something about offshores, the want to drop 50% income tax but to counter balance that they might be more aggressive at making sure people pay 40%.

I am not saying it does not work, all I am saying if it works it will be known after very long period of time and BN66 situation certainly made my mind up.

[ASB]

Erm, I thought Tax Avoidance was legal and Tax evasion was the naughty one.

Is this HMRC deliberately muddying the waters?

Only in as much as what they are saying is "we reserve the right to challenge". What they are trying to, in my view, is to put off prospective users for fear of the consequences.

I don't think this is particularly just. It is the governments responsibility to frame legislation that meets its ends. If somebody exploits this in a way the don't like then so be it. They should fix it prospectively when the defect is discovered. I personally don't think that the sort arrangements peddled through the IOM should work; but I believe quite a lot of them do. HMRC results in challenging aren't terribly favourable to HMRC.

The problem that Vallah (or rather his clients) are more likely to face is not whether his scheme works or not. BN66 (if the current result stands) will ensure that HMRC will not need to test the scheme against current law (and likely lose). They will be able to test against what they wanted the law to say. The Montpelier scheme itself has never been tested by any court against the legislation that applied to it. I believe HMRC did not want to do this because they knew they would lose.

That said there are some strong clues from the BN66 judgement as to how one should perhaps attempt to defend any challenge. Formal determination at the outset might be a good move. This might give a chance to get a case heard against the law at that instant in time before HMRC have the chance to go back and rewrite history.

[AtW]

Formal determination at the outset might be a good move.

You mean challenging court to rule that scheme is legal before anybody uses it?

[BlasterBates]

I don't see them muddying the waters. When they challenge a tax assessment it's a civil case not a criminal case. They're just disagreeing with your asessment of how much tax you should pay, and asking you to pay more, no penalties, just a correction to your tax. Happens all the time, also for "ordinairy" tax returns. This one of the things to be wary of in legality, these schemes are rarely illegal, as long as you declare something on your tax form, it's legal, but they will be challenged, and "your" (the scheme's) interpretation of the law and your tax may well be grossly underestimated. Agressive tax avoidance, means potentially massive tax demands. I don't see any mention of criminal prosecution in their statement.

Of course with regard to the BN66 we will never know if HMRC would have won or lost, but the judge said in his ruling it would have been a difficult case, in other words it wasn't water tight, as the scheme providers suggested. People should take note of that, it would have been a nail biter at best. HMRC just weighted it in their favour by clarifying the point over which the two parties would have been fighting. Even if the retrospective rule gets overturned, HMRC could still push the case on the basis of the law at the time.

[AtW]

It is the governments responsibility to frame legislation that meets its ends.

They could do that, but they could also add to legislation that if they succeed in recovering extra tax greater than £X (say £20k) then the person in question will be deemed evader and go to jail for a few years.

[ASB]

You mean challenging court to rule that scheme is legal before anybody uses it?

No. The court need an actual case (I think you'd have an uphill struggle getting a court to hear anything until HMRC had actually challenged).

By demanding determination HMRC will effectively say "yep, you owe us the money". You then have something to appeal. Thus obtaining determination can potentially get your case heard by somebody who actually has the power to rule on it much sooner than would otherwise be the case.

By negotiating with HMRC etc this gives the potential for the rules to be change to your detriment whilst negotiations are ongoing. The BN66'ers have discovered what happens if they wait (at HMRC request) for test cases to go to the commissioners and agree to be bound by the results.

[ASB]

They could do that, but they could also add to legislation that if they succeed in recovering extra tax greater than £X (say £20k) then the person in question will be deemed evader and go to jail for a few years.

In principle they could do something like that yes. Though in the case of your actual example they couldn't do that at all. You simply cannot apply criminal sanction to a civil case. In theory they could create an offence of "wilfully using a tax avoidance scheme which subsequently fails for an amount in excess of 20k" but I do imagine they would struggle to get it on the statute books. Not least because civil cases are tried under balance of probabilities rather than burden of proof. After all would a jury have reached a guilty verdict on the original avoidance based on the evidence.

Consider Ken Dodd and what happened there.